REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

THIRD DIVISION

PREMIUM LEISURE CORP.

(FORMERLY: SINOPHIL
CORPORATION),
Petitioner,
CTA CASE NO. 8940

-versus- Members:

BAUTISTA, Chairperson;
. FABON-VICTORINO, and
RINGPIS-LIBAN,J.L

COMMISSIONER OF INTERNAL
REVENUE,
Respondent.
Promulgated:

MAR 1't 201Z

x-----------------------------------------------------------~------~!-~~~~~-----------x

DECISION

RINGPIS-LIBAN, J.

STATEMENT OF THE CASE

This is a Petition for Review1 filed on November 28, 2014 by Premium

Leisure Corp. (formerly: Sinophil Corporation) to seek the refund or the
issuance of tax credit certificate (TCC) in the amount of P6,522,000.00,
allegedly representing capital gains tax erroneously remitted by petitioner
arising from its receipt of real property by way of liquidating dividend from
Belle Bay City Corporation (BBCC).

STATEMENT OF FACTS

Petitioner Premium Leisure Corp. is a domestic corporation duly

organized and existing under and by virtue of the laws of the Philippines, wi~
1 Docket, Vol. I, pp. 6-21.
DECISION
CTA CASE NO. 8940
Page 2 of21

principal address at srh Floor, Two E-Com Center, Mall of Asia Complex, CBP-
1A, Pasay City. It is primarily established to invest in, purchase, or otherwise
acquire and own, hold, use, develop, lease, sell, assign, transfer, mortgage,
pledge, exchange, operate, or otherwise dispose of all properties of every kind,
nature and description. Previously, petitioner did business under the name of
Sinophil Corporation until the Securities and Exchange Commission (SEC)
approved the amendment of its Articles of Incorporation, changing its name to
Premium Leisure Corp. on September 5, 2014. 2

Respondent is the duly appointed Commissioner of the Bureau of

Internal Revenue (BIR) empowered to perform the duties of his office,
including, among others, to act on and approve claims for refund or tax credit
as provided by law. He holds office at the BIR National Office Building,
Agham Road, Diliman, Quezon City.

Petitioner is the registered holder of 74,027,418 shares of the capital

stock of BBCC. 3 On January 27, 2005, the Securities and Exchange
Commission approved BBCC's Amended Articles of Incorporation4, wherein
Article IV thereof was amended to shorten the term of BBCC's existence only
until January 31, 2004.

Pursuant to BBCC's letter dated June 27, 2006, requesting confirmation

from the BIR of its opinion as regards certain tax implications in relation to the
transfer of its lots to its stockholders as liquidating dividends, the BIR issued
BIR Ruling DA-316-2007 5 on May 29, 2007 declaring that the transfer by
BBCC of the reclaimed lots to its stockholders as liquidating dividends is not
subject to income tax, creditable withholding tax, and documentary stamp tax;
and that the receipt of reclaimed lots as liquidating dividends by the
stockholder is a taxable income or a deductible loss, as the case may be.

On November 12, 2012, BBCC executed a Deed of Conveyance6 in

favor of petitioner, transferring a parcel of land with an area of 4,348 square
meters, more or less, located in Aseana Business Park, Roxas Blvd. Paraiiaque
City and is duly covered by Transfer Certificate of Title (TC1) No. 169887, as
liquidating dividends.

On November 16, 2012, petitioner filed before the BIR its Withholding
Tax Remittance Return7 and Documentary Stamp Tax Declaration/Return8
/Y"'

2 Exhibits "P-1"and "P-1-a", Docket, Vol. I, pp. 489-500; Par. 1.1, Joint Stipulation of Facts and Issues,
Docket, Vol. I, pp. 303-304.
3 Exhibit "P-3", Docket, Vol. II, p. 509.

~Exhibits "P-4" and "P-4-a", Docket, Vol. II, pp. 510-519.

5 Exhibit "P-5", Docket, Vol. II, pp. 520-524.
6 Exhibit "P-6", Docket, Vol. II, pp. 525-527.
7 Exhibit "P-7", Docket, Vol. II, p. 528.
8 Exhibit "P-8", Docket, Vol. II, p. 529.
DECISION
CTA CASE NO. 8940
Page 3 of21

without having remitted or paid any corresponding withholding tax or

documentary stamp tax.

In its 2012 Annual Income Tax Return9 , petitioner reported the fact of
its receipt of liquidating dividends from BBCC by recognizing a net liquidating
gain of P33,324,175.00 as part of its "Other Taxable Income not Subjected to
Final Tax," thus, subjecting said liquidating gains to the thirty percent (30%)
regular corporate income tax.

On November 28, 2012, petitioner ftled its Capital Gains Tax Return 10
with the Land Bank of the Philippines (LBP), Baclaran Branch and paid under
protest11 the amount of P6,522,000.00 allegedly representing capital gains tax
arising from its receipt of real property by way of liquidating dividends from
BBCC.

On April 8, 2014, petitioner filed an application for refund and/ or

issuance of TCC, through a Letter12 dated March 28, 2014, to recover the
capital gains tax previously remitted in the amount of P6,522,000.00 in relation
to the conveyance of real properties by BBCC to petitioner by way of
liquidating dividends.

There being no action taken by respondent on petitioner's administrative

claim for refund or issuance of TCC, petitioner ftled the present Petition for
Review before this Court on November 28,2014.

Respondent filed his Answer (with Motion to Dismiss) 13 , through

registered mail on February 23, 2015 and received by the Court on March 5,
2015, interposing as Special and Affirmative Defenses: that petitioner claims
that as a condition precedent for the imposition of such tax (6% capital gains
tax), it is required that there must be a closed and completed transaction in
which the transferor corporation has the potential to realize income; that
capital gains tax is a final tax assessed on the presumed gain derived by Belle
Bay City Corporation ('BBCC') from the disposition of their parcel of land
located at Barangay Tambo, Aseana Business Park, Paranaque City, in exchange
of common shares of stock owned by petitioner; that it is not essential that a
gain must be realized first before a Corporation may be held liable under
Section 27 (D)(5) of the National Internal Revenue Code since gain is
presumed from the disposition of their real property considered as capital asset;
that petitioner claims under paragraph 8 of the Petition that on May 29, 2007
the Commissioner of Internal Revenue (CIR) issued BIR Ruling DA-316-07 to
address the query of BBCC which provides that, BBCC's transfer of real
,/)/'

9 Exhibit "P-9", Docket, Vol. II, pp. 530-537.

111Exhibits "P-10", "P-10-a", "P-11", and "P-11-a", Docket, Vol. II, pp. 541-542.
11 Exhibits "P-12", "P-12-a", and "P-12-b", Docket, Vol. II, pp. 543-548.
12 Exhibit "P-14", Docket, Vol. II, pp. 556-560.

13 Docket, Vol. I, pp. 102-107.

DECISION
CTA CASE NO. 8940
Page 4 of21

properties by way of liquidating dividends to its stockholders is not considered

as a sale of such assets for tax purposes. Consequently, the same will not give
rise to any liability for payment of income tax, withholding tax and
documentary stamp tax since BBCC, as a corporation undergoing the process
of liquidation, will not realize any taxable gain or loss during such process.
However, any liquidating gain that may be realized by its stockholders, which
represents the difference between the fair market value of the properties
received and the and the cost basis of their investment in BBCC, shall be
treated as a gain from the sale or exchange of shares which is subject only to
regular income tax; that on December 5, 2011 the CIR issued BIR Ruling No.
479-2011 in response to Aguierre Pawnshop Inc.'s request for confirmatory
ruling on the tax implications of distributing remaining assets of the
corporation to its stockholders by way of liquidating dividends; that BIR
Ruling DA-316-07 secured by BBCC on May 29, 2007, having the same set of
facts and issues interrelated to Aguierre Pawnshop Inc.'s request for
confirmatory ruling, was deemed reversed and set aside through the issuance of
BIR Ruling No. 479-2011 on December 5, 2011; that the nature of this Petition
consist of claim for refund and/ or issuance of tax credit certificates to recover
capital gains tax erroneously remitted. Petitioner remitted the capital gains tax
on November 28, 2012, almost one year after BIR Ruling No. 479-2011 was
issued, wherein respondent Commissioner held liable the liquidating
corporation for income tax on its transfer of properties to its shareholder and
on its receipt of the surrendered shares from the shareholder. Hence, this
Petition must fail as there was no erroneous remittance or payment was made;
that under Article 1487 of the Civil Code and Section 2 of Revenue Regulations
No. 13-85, the seller who was conclusively presumed to have realized capital
gains from every sale or exchange or other disposition of real property
classified as capital asset is the one obliged to pay the capital gains tax, based on
its obligation to transfer title over the property to the seller; that BBCC as seller
is the one liable for the payment of the corresponding capital gains tax; that
BBCC should be the proper party who should file the claim for refund in this
case and not the buyer as herein petitioner; that petitioner's claim for refund is
still subject to investigation by the Bureau of Internal Revenue; and that
petitioner failed to demonstrate that the tax, which is the subject of this case,
was erroneously or illegally collected.

Petitioner ftled its Reply 14 on March 9, 2015. In the Resolution 15 dated

April 20, 2015, the Court held that the interests of justice would be more
adequately served if trial would ensue and both parties are given the
opportunity to present evidence to back up their respective claims. Hence,
respondent's Motion to Dismiss was denied.

The Pre-Trial Conference 16 was set on June 9, 2015. Petitioner flied its
Pre-Trial Brief17 on June 4, 2015; while respondent's Pre-Trial Brief1 8 was ftle~

t4 Docket, Vol. I, pp. 109-122.

IS Docket, Vol. I, pp. 132-135.
16 Notice of Pre-Trial Conference, Docket, Vol. I, pp. 136-137.

t7 Docket, Vol. I, pp. 138-153.

DECISION
CD\ CASE NO. 8940
Page 5 of21

through registered mail on June 5, 2015 and received by the Court on June 18,
2015. The parties flied their Joint Stipulation of Facts and Issues 19 on June 18,
2015. The Pre-Trial Order20 was issued on August 7, 2015.

Petitioner filed its Formal Offer of Evidence21 on September 29, 2015,

offering Exhibits "P-1" "P-1-a" "P-2" "P-3" "P-4" "P-4-a" "P-5" "P-6"
' ' ' ' ' ' ' '
"P-6-a" "P-6-b" "P-7" "P-8" "P-9" "P-1 0" "P-1 0-a" "P-11" "P-11-a" "P-
' ' ' ' ' ' ' ' '
12" "P-12-a" "P-12-b" "P-13" "P-14" "P-14-a" "P-15" "P-15-a" "P-16"
' ' ' ' ' ' ' ' '
and "P-16-a", as its documentary evidence. Respondent, however, failed to file
his comment to petitioner's Formal Offer of Evidence. 22

In the Resolution 23 dated November 16, 2015, the Court admitted

Exhibits "P-1" "P-1-a" "P-2" "P-3" "P-4" "P-4-a" "P-5" "P-6" "P-6-a"
' ' ' ' ' ' ' ' '
"P-6-b" "P-7" "P-8" "P-9" "P-10" "P-10-a" "P-11" "P-11-a" "P-12" "P-
' ' ' ' ' ' ' ' '
12-a" "P-12-b" "P-13" "P-14" "P-14-a" "P-15" "P-15-a" "P-16" and "P-
' ' ' ' ' ' ' '
16-a". Respondent manifested that he would not present evidence since no
report of investigation was submitted to him by the BIR examiners. 24

Petitioner flied its Memorandum25 on March 15, 2016; while the

Memorandum for Respondent26 was filed through registered mail on March 9,
2016 and received by the Court on March 18, 2016. The case was declared
submitted for decision on March 29, 2016. 27

ISSUES

The parties submitted the following issues 28 for this Court's disposition:

1. Whether or not the transfer of real property by BBCC to petitioner,

by way of liquidating dividends, is subject to the six percent (6%)
final withholding capital gains tax prescribed under Section 27(d)(5)
of the Tax Code;

2. Whether or not petitioner is entitled to a refund and/ or issuance of

TCC to recover the 6% final withholding capital gains tax it had
erroneously remitted to the BIR pursuant to Sections 204(C) and 229
of the Tax Code; an~

18 Docket, Vol. I, pp. 298-301.

19 Docket, Vol. I, pp. 303-310.
2o Docket, Vol. I, pp. 334-339.
21 Docket, Vol. I, pp. 474-488.
22 Records Verification dated October 13,2015, Docket, Vol. II, p. 561.

23 Docket, Vol. II, pp. 563-564.

2+ l'vfinutes of the hearing dated February 16, 2016, Docket, Vol. II, p. 566.

25 Docket, Vol. II, pp. 569-599.

26 Docket, Vol. II, pp. 600-604.
27 Docket, Vol. II, p. 607.
28 Joint Stipulation of Facts and Issues, Docket, Vol. I, p. 307.
DECISION
CTA CASE NO. 8940
Page 6 of21

3. Whether or not petitioner has legal capacity to sue.

RULING OF THE COURT

The Court shall determine first the timeliness of the filing of this
Petition for Review.

Section 204(C) of the National Internal Revenue Code (NIRC) of 1997,

as amended, provides:

"SEC. 204. Authoriry of the Commissioner to Compromise, Abate

and Refund or Credit Taxes. - The Commissioner may -

XXX XXX XXX

(C) Credit or refund taxes erroneously or illegally received

or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition
by the purchaser, and, in his discretion, redeem or change unused
stamps that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within
two (2) years after the payment of the tax or penalty: Provided,
however, that a return flied showing an overpayment shall be
considered as a written claim for credit or refund." (Emphasis
supplied)

In this regard, Section 229 of the NIRC of 1997, as amended, states:

"SEC. 229. Recovery of Tax Erroneous!J or Illegal!J Collected. -

No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress~
DECISION
CTA CASE NO. 8940
Page 7 of21

In any case, no such suit or proceeding shall be filed

after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been
erroneously paid." (Emphasis supplied)

Section 229 governs exclusively all kinds of refund or credit of internal

revenue taxes erroneously or illegally imposed or collected pursuant to the Tax
Code. 29 Consequently, Section 204(C) applies to administrative claims filed
with the BIR, while Section 229 refers to judicial actions for the recovery of the
tax. However, the settled rule is that both the. claim for refund with the BIR
and the subsequent appeal to this Court must be filed within the two (2)-year
period from the date of payment of the tax, regardless of any supervening
cause that may arise after payment. Therefore, the date of payment of the tax
is important for purposes of counting the two-year prescriptive period. 30

A review of the records reveals that petitioner paid the amount of

P6,522,000.00 representing capital gains tax 31 from its receipt of real property
by way of liquidating dividends from BBCC on November 28, 2012. From the
said date, petitioner had two (2) years or until November 28, 2014 within which
to file its administrative and judicial claims for refund. Petitioner filed its
administrative claim for refund and/ or issuance of TCC 32 on April 8, 2014 and
its judicial claim33 on November 28, 2014. Thus, both the administrative and
the judicial claims were filed within the two-year prescriptive period.

Petitioner, as withholding agent of

BBCC, may file a claim for refund
and/ or issuance of TCC.

Petitioner contends that, as a withholding agent of both BBCC and the

BIR and as the actual party who paid the subject tax, it has the legal capacity to
file the instant application for refund. 34 Respondent counters that BBCC is the
proper party who should file the claim for refund and not petitioner who does
not have the necessary qualification to appear in this case or does not have the
character or representation it claims~

29 Commissioner of Internal &venue vs. Central Luzon Drug Corp., G.R. No. 148512, June 26, 2006.
30 Manila North Tollwqys Corporation vs. Commissioner of Internal &venue, CTA EB No. 812 (CTA Case No. 7864),
October 11, 2012.
31 Exhibit "P-10", Docket, Vol. II, pp. 541-542.
32 Exhibit "P-14", Docket, Vol. II, pp. 556-560.
33 Docket, Vol. I, pp. 6-21.
3~ Docket, Vol. II, p. 591.
35 Docket, Vol. II, p. 603.
DECISION
CTA CASE NO. 8940
Page 8 of21

The Court agrees with petitioner.

In the case of Commissioner of Internal Revenue vs. Smart Communication, Inc. 36 ,
the Supreme Court held that a withholding agent may file a claim for refund, to
wit:

"Withholding agent may file a claim for refund

Sections 204(C) and 229 of the National Internal Revenue

Code (NIRC) provide:

Sec. 204. Authority of the Commissioner to

Compromise, Abate, and Refund or Credit Taxes.-
The Commissioner may -

XXX XXX XXX

(C) Credit or refund taxes erroneously or

illegally received or penalties imposed without
authority, refund the value of internal revenue
stamps when they are returned in good condition by
the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit
for use and refund their value upon proof of
destruction. No credit or refund of taxes or penalties
shall be allowed unless the taxpayer flies in writing
with the Commissioner a claim for credit or refund
within two (2) years after the payment of the tax or
penalty: Provided, however, That a return flied
showing an overpayment shall be considered as a
written claim for credit or refund.

XXX XXX XXX

Sec. 229. Recovery of Tax Erroneously or

Illegally Collected. - No suit or proceeding shall be
maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to
have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit o~

36 G.R. Nos. 179045-46, August 25, 2010.

DECISION
CTA CASE NO. 8940
Page 9 of21

proceeding may be maintained, whether or not such

tax, penalty, or sum has been paid under protest or
duress.

In any case, no such suit or proceeding shall

be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment:
Provided, however, That the Commissioner may,
even without a written claim therefor, refund or
credit any tax, where on the face of the return upon
which payment was made, such payment appears
clearly to have been erroneously paid. (Emphasis
supplied)

Pursuant to the foregoing, the person entitled to claim

a tax refund is the taxpayer. However, in case the taxpayer
does not file a claim for refund, the withholding agent may
file the claim.

In Commissioner rf Internal Revenue v. Procter & Gamble

Philippine Manufacturing Cotporation, a withholding agent was
considered a proper party to flle a claim for refund of the withheld
taxes of its foreign parent company. Pertinent portions of the
Decision read:

The term 'taxpayer' is defined in our NIRC as

referring to 'any person subject to tax imposed by
the Tide [on Tax on Income].' It thus becomes
important to note that under Section 53(c) of the
NIRC, the withholding agent who is 'required to
deduct and withhold any tax' is made 'personally
liable for such tax' and indeed is indemnified against
any claims and demands which the stockholder
might wish to make in questioning the amount of
payments effected by the withholding agent in
accordance with the provisions of the NIRC. The
withholding agent, P&G-Phil., is direcdy and
independendy liable for the correct amount of the
tax that should be withheld from the dividend
remittances. The withholding agent is, moreover,
subject to and liable for deficiency assessments,
surcharges and penalties should the amount of the
tax withheld be finally found to be less than the
amount that should have been withheld under law~
DECISION
CTA CASE NO. 8940
Page 10 of 21

A 'person liable for tax' has been held to be a

'person subject to tax' and properly considered a
'taxpayer.' The terms 'liable for tax' and 'subject to
tax' both connote legal obligation or duty to pay a
tax. It is very difficult, indeed conceptually
impossible, to consider a person who is statutorily
made 'liable for tax' as not 'subject to tax.' By any
reasonable standard, such a person should be
regarded as a party in interest, or as a person
having sufficient legal interest, to bring a suit for
refund of taxes he believes were illegally
collected from him.'' (Emphasis supplied)

Moreover, in the case of The Philippine Guaranty Co., Inc. vs. The
Commissioner of Internal Revenue, et aL 37 , the Supreme Court discussed the
responsibility of withholding agent as the agent of both the Government and
the taxpayer, as follows:

"The law sets no condition for the personal liability of the

withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all circumstances. In
effect, the responsibility for the collection of the tax as well as the
payment thereof is concentrated upon the person over whom the
Government has jurisdiction. Thus, the withholding agent is
constituted the agent of both the Government and the taxpayer.
With respect to the collection and/ or withholding of the tax, he is
the Government's agent. In regard to the filing of the necessary
income tax return and the payment of the tax to the Government,
he is the agent of the taxpayer. The withholding agent, therefore,
is no ordinary government agent especially because under Section
53 (c) he is held personally liable for the tax he is duty bound to
withhold; whereas, the Commissioner of Internal Revenue and his
deputies are not made liable by law."

In the case of Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist
and Supervisors Union 38 , the High Tribunal recognized the right of the
withholding agent to file a claim against an illegal and erroneous collection of
tax, to wit:

"Moreover, the NIRC only holds the withholding agent

personally liable for the tax arising from the breach of his legal
duty to withhold, as distinguished from his duty to pay tax. Under
Section 79 (B) of the NIRC, if the tax required to be deducted and
withheld is not collected from the employer, the employer sh~

37 G.R. No. L-22074, September 6, 1965.

38 G.R. No. 204142, November 19,2014.
DECISION
CTA CASE NO. 8940
Page 11 of21

not be relieved from liability for any penalty or addition to the

unwithheld tax.

Thus, if the BIR illegally or erroneously collected tax, the

recourse of the taxpayer, and in proper cases, the withholding
agent, is against the BIR, and not against the withholding agent.
The union's cause of action for the refund or non-withholding of
tax is against the taxing authority, and not against the employer.
xxx"

Petitioner, as a withholding agent is a party in interest, or as a person

having sufficient legal interest to bring a suit for issuance of TCC or refund of
illegally or erroneously collected taxes, because it is considered a "taxpayer"
under the NIRC since it is personally liable for the withholding tax and
deficiency assessments, surcharges and penalties should the amount of the tax
withheld be finally found to be less than the amount that should have been
withheld under law; and as an agent of the taxpayer, its authority to file the
necessary returns and to remit the tax withheld to the government necessarily
includes the authority to file a claim for refund and/ or issuance of TCC and to
bring an action for recovery of such claim.

The Court shall now proceed to discuss whether petitioner is entitled to

the issuance of TCC or refund of its capital gains tax which entails the
determination of whether the transfer of real property by BBCC to petitioner,
by way of liquidating dividends, is considered sale and therefore subject to the
6% final withholding capital gains tax prescribed under Section 27 (d) (5) of the
Tax Code.

Mere distribution of liquidating

dividends on account of the
dissolution of a corporation is not to
be treated as sale for purposes of the
imposition of capital gains tax.

Petitioner asserts that it is entitled to a tax refund or issuance of TCC in

the amount of P6,522,000.00, representing capital gains tax erroneously remitted
by petitioner arising from its receipt of real property by way of liquidating
dividends since the conveyance of real property by BBCC in favor of petitioner
may not be considered as a taxable sale or exchange of properties. 39

Respondent, on the other hand, argues that capital gains tax is a final tax
assessed on the presumed gain derived by BBCC from the disposition of its
parcel of land in exchange for common shares of stock owned by petitioner.
He claims that it is not essential that a gain must be realized first before /r'
39 Docket, Vol. II, p. 584.
DECISION
CTA CASE NO. 8940
Page 12 of 21

corporation may be held liable under Section 27(D)(5) of the Tax Code since
gain is presumed from the disposition of its real property considered as capital
asset. 40

The Court finds respondent's arguments to be without merit.

The authority to impose capital gains tax is found in Section 24(D) of the
NIRC of 1997, as amended, quoted as follows:

"SEC. 24. Income Tax Rates. -

XXX XXX XXX

(D) Capital Gains from Sale of Real Properry. -

(1) In General. - The provisions of Section 39(B)

notwithstanding, a final tax of six percent (6%) based on the gross
selling price or current fair market value as determined in
accordance with Section 6(E) of this Code, whichever is higher, is
hereby imposed upon capital gains presumed to have been
realized from the sale, exchange, or other disposition of real
property located in the Philippines, classified as capital assets,
including pacto de retro sales and other forms of conditional sales,
by individuals, including estates and trusts: Provided, That the tax
liability, if any, on gains from sales or other dispositions of real
property to the government or any of its political subdivisions or
agencies or to government-owned or controlled corporations shall
be determined either under Section 24(A) or under this
Subsection, at the option ofthe taxpayer." (Emphasis supplied)

Capital gains tax is a tax on the gain from the sale of the taxpayer's
property forming part of capital assets. 41 Tt implies that in order to be liable for
payment of capital gains tax, one has to profit or gain from the sale, exchange
or disposition of the real property. In other words, in the absence of income
from or the absence of sale, disposition or conveyance of real property, the
imposition of capital gains tax does not arise. 42

A contract of sale is defined under Article 1458 of the Civil Code, as

follows~

4o Docket, Vol. II, p. 601.

41 CommiHioner of Internal Revenue vs. B.F. Goodrich Phik, Inc·. (now Sime Dar!ry International Tire Co., Inc.), et aL, G.R.
No. 104171, February 24, 1999.
42 Spouses Mabutas vs. Hon. Lilian B. H~fti, OIC-Commissionerofinternal Revenue, CTA Case No. 7659,June 3, 2009.
DECISION
CTA CASE NO. 8940
Page 13 of21

"Art. 1458. By the contract of sale, one of the contracting

parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent."

Accordingly, for a contract to be valid, it must have three essential

elements: (1) consent of the contracting parties; (2) object certain which is the
subject matter of the contract; and (3) cause of the obligation which is
established. 43

In the case of Oranbo Realty Corporation vs. The Commissioner of Internal

Revenue44 , this Court ruled that the conveyance of real property as a result of a
valid dissolution was without any consideration, as follows:

"There is no question that the Deed of Conveyance was

issued in favor of petitioner by Noma Development Corporation
as liquidating dividend being the sole stockholder of the latter.
The conveyance of real property was effected without any
consideration since it was done in pursuance to a valid dissolution
of Noma Development Corporation and not by sale."

It must be emphasized that the subject real property was distributed in

the form of liquidating dividend as a consequence of BBCC's dissolution as
clearly stated in the Deed of Conveyance45 executed by BBCC as assignor and
petitioner as assignee, to wit:

"DEED OF CONVEYANCE
(of Real Property as Liquidating Dividends)

XXX XXX XXX

ACKNOWLEDGES, That-

WHEREAS, the ASSIGNOR is currently in the process of

winding up its affairs as a juridical entity after having been
dissolved through the shortening of its corporate term which was
approved by the Securities and Exchange Commission on 27
January 2005;,.1

43 Heirs rifDr. Mario S. Intac, et aL vs. Court rifAppeals, et aL, G.R. No. 173211, October 11, 2012.
44 CTA Case No. 4820,January 23, 1995.
~ 5 Exhibit "P-6", Docket, Vol. II, pp. 525-527.
DECISION
CTA CASE NO. 8940
Page 14 of 21

WHEREAS, the ASSIGNEE is a shareholder of the

ASSIGNOR holding approximately Four Percent (4%) of the
outstanding capital stock of the latter at the time of its dissolution;

WHEREAS, in light of the approval by the SEC of the

dissolution of ASSIGNOR, its Board of Directors, having been
reconstituted as Board of Liquidators, approved the proportionate
distribution to its stockholders of all remaining assets, consisting
mainly of several parcels of land located at the Aseana Business
Park, Roxas Boulevard, Paraiiaque City, Metro Manila, as
liquidating dividends;

WHEREAS, pursuant to the Distribution Plan approved by

the Board of Liquidators and ratified by the stockholders
representing at least a majority of the outstanding capital stock of
ASSIGNOR, certain parcels of land have been allocated for
distribution to the ASSIGNEE;

NOW, THEREFORE, for and in consideration of the

foregoing premises, the ASSIGNOR hereby ASSIGNS,
TRANSFERS and CONVEYS unto the ASSIGNEE, the
following parcels of land, free from all liens and encumbrances,
which properties shall form part of the latter's distributive share
or liquidating dividends, as shareholder of ASSIGNOR:

XXX XXX xxx"

From the foregoing, it is clear that the Deed of Conveyance executed by

BBCC, transferring the real property as liquidating dividend in favor of
petitioner, was actually effected as a result of BBCC's dissolution.

In the case of the Heirs if the Late Spouses Aurelio and Esperanza Bafite, eta!.
vs. Rodrigo N. Lim46 , the Supreme Court ruled that:

"When the words of a contract are clear and readily

understandable, there is no room for construction. Contracts are
to be interpreted according to their literal meaning and should not
be interpreted beyond their obvious intendment. The contract is
the law between the parties."

Considering that the conveyance by BBCC in favor of petitioner was

done in pursuance of BBCC's dissolution and considering further that there~

46 G.R. No. 152168, December 10, 2004.

DECISION
CTA CASE NO. 8940
Page 15 of21

property is conveyed as a liquidating dividend, the transaction is therefore not

subject to capital gains tax.

Moreover, the BIR specifically issued BIR Ruling DA-316-2007 47 on

May 29, 2007 in response to BBCC's query as to the taxability of its transfer of
the real property as liquidating dividend in favor of petitioner. In BIR Ruling
DA-316-2007, the BIR declared that the transfer by BBCC of the reclaimed
lots to its stockholders as liquidating dividends is not subject to income tax,
creditable withholding tax, and documentary stamp tax.

Likewise, in the case of Victoria Fernando vs. Sps. Regina/do Lim and
Asuncion Lim48 , the Supreme Court declared that a mere distribution of
liquidating dividends on account of the dissolution of a corporation is not
considered a sale of asset by the liquidating corporation for the purpose of the
imposition of capital gains tax, as follows:

"The provisional ruling of the MeTC on said issue is that

P.D. No. 1517 does not apply to the case because there was no
sale between LKTSI and respondents but a mere distribution of
liquidating dividends on account of the dissolution of LKTSI.

The share of each stockholder in the remaining assets of

the corporation upon liquidation, after the payment of all
corporate debts and liabilities, is what is known as liquidating
dividend. In its interpretation of recent tax laws, the Bureau of
Internal Revenue viewed the distribution of liquidating dividends
not as a sale of asset by the liquidating corporation to its
stockholder but as a sale of shares by the stockholder to the
corporation or the surrender of the stockholder's interest in
the corporation, in place of which said stockholder receives
property or money from the corporation about to be
dissolved Thus, on the part of the stockholder, any gain or
loss is subject to tax, while on the part of the liquidating
corporation, no tax is imposed on its receipt of the shares
surrendered by the stockholder or transfer of assets to said
stockholder because said transaction is not treated as a sale."
(Emphasis supplied)

It is important to note that the above-cited decision of the Supreme

Court which ruled that the distribution of liquidating dividends as a result of
dissolution is not subject to tax, constitute a binding precedent in respect to
similar cases. Let it be stressed that only decisions of the Supreme Court
constitute binding precedents, forming part of the Philippine legal system. 49 I~

47 Exhibit "P-5", Docket, Vol. II, pp. 520-524.

48 G.R. No. 176282, August 22, 2008.
49 Visqyas Geothermal Power Compmry vs. Commissioner q( Internal Revenue, G.R. No. 197525, June 4, 2014.
DECISION
CTA CASE NO. 8940
Page 16 of 21

the case of Columbia Pictures, Inc., et al. vs. Court if Appeals, et al. 50
, the Supreme
Court held that:

"xxx Judicial decisions, though not laws, are nonetheless

evidence of what the laws mean, and it is for this reason that they
are part of the legal system of the Philippines. Judicial decisions of
the Supreme Court assume the same authority as the statute
itself."

Applying the foregoing discussion, BBCC's transfer of real property as a

liquidating dividend in favor of petitioner, is therefore not subject to capital
gains tax.

BIR Ruling No. 479-2011 is not a

general interpretative rule applicable
to all taxpayers including petitioner;
BIR Ruling No. 479-2011 was issued
by the BIR in response to Aguirre
Pawnshop Company, Inc.'s request
for confirmation.

Respondent contends that BIR Ruling DA-316-2007 secured by BBCC on

May 29, 2007, having the same set of facts and issues interrelated to Aguirre
Pawnshop Company, Inc.'s request for confirmatory ruling, was deemed
reversed and set aside through the issuance of BIR Ruling No. 479-2011 on
December 5, 2011. 51

Respondent's contention lacks legal basis.

It must be noted that a BIR ruling contains the official written

interpretative opinion of the Commissioner of Internal Revenue addressed to a
particular taxpayer regarding his taxability over certain matters. 52 Hence, a BTR
Ruling could be invoked only by the taxpayer who sought the same.

In the case of Commissioner if Internal Revenue vs. Pi/invest Development

Corporation53 , the Supreme Court held that BIR Ruling No. 116-98 could be
invoked only by ASB Development Corporation, the taxpayer who sought the
same, as follow//

5o G.R. No. 110318, August 28, 1996.

51 Docket, Vol. II, p. 602.
52 Bank if Commen-e vs. Commissioner if Internal Revenue, CTA EB No. 259 (CL\ Case No. 6975), September 17,

2007.
53 G.R. Nos. 163653 and 167689, July 19, 2011.
DECISION
CTA CASE NO. 8940
Page 17 of 21

"Applying the aforesaid provisions to the case at bench, we

find that the instructional letters as well as the journal and cash
vouchers evidencing the advances FDC extended to its affiliates in
1996 and 1997 qualified as loan agreements upon which
documentary stamp taxes may be imposed. In keeping with the
caveat attendant to every BIR Ruling to the effect that it is valid
only if the facts claimed by the taxpayer are correct, we find that
the CA reversibly erred in utilizing BIR Ruling No. 116-98,
dated 30 July 1998 which, strictly speaking, could be invoked
only by ASB Development Corporation, the taxpayer who
sought the same. In said ruling, the CIR opined that documents
like those evidencing the advances FDC extended to its affiliates
are not subject to documentary stamp tax xxx

XXX XXX XXX

In its appeal before the CA, the CIR argued that the
foregoing ruling was later modified in BIR Ruling No. 108-99
dated 15 July 1999, which opined that inter-office memos
evidencing !endings or borrowings extended by a corporation to
its affiliates are akin to promissory notes, hence, subject to
documentary stamp taxes. In brushing aside the foregoing
argument, however, the CA applied Section 246 of the 1993
NIRC from which proceeds the settled principle that rulings,
circulars, rules and regulations promulgated by the BIR have no
retroactive application if to so apply them would be prejudicial to
the taxpayers. Admittedly, this rule does not apply: (a) where the
taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of
Internal Revenue; (b) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the facts
on which the ruling is based; or (c) where the taxpayer acted in
bad faith.-Not being the taxpayer who, in the first instance,
sought a ruling from the CIR, however, FDC cannot invoke
the foregoing principle on non-retroactivity of BIR rulings."
(Emphases supplied)

It must be stressed that BIR Ruling No. 479-2011 was issued by the BIR
in response to a particular taxpayer, Aguirre Pawnshop Company, Inc.'s request
for confirmation. Hence, BIR Ruling No. 479-2011 cannot be considered a
general interpretative rule which can be applied to all taxpayers including
petitioner.

In the case of Team Energy Corporation (former!J Mirant Pagbilao Corporation)

vs. Commissioner of Internal Revenue5\ the Supreme Court ruled that BIR Ruling No.
/
s~ G.R. No. 197760,January 13,2014.
DECISION
CTA CASE NO. 8940
Page 18 of21

DA-489-03 is a general interpretative rule because it is a response to a query

made, not by a particular taxpayer, but by a government agency tasked with
processing tax refunds and credits, as follows:

"Thus, the only issue is whether BIR Ruling No. DA-489-

03 is a general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative

rule because it is a response to a query made, not by a
particular taxpayer, but by a government agency tasked with
processing tax refunds and credits, that is, the One Stop
Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the
addressee, or the entity responded to, in BIR Ruling No. DA-489-
03. Thus, while this government agency mentions in its query to
the Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was, in fact, asking the
Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for
the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general

interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120-130 day
periods are mandatory and jurisdictional" (Emphases supplied)

Considering that BIR Ruling No. 479-2011 was issued as a response to a

query made by a particular taxpayer, Aguirre Pawnshop Company, Inc., the
same cannot be considered a general interpretative rule that can be applied to
all taxpayers including petitioner.

It is worthy to note that the BIR has issued BIR Ruling DA-316-2007 to
specifically address BBCC's request for confirmation regarding the tax
implications of its transfer of real property in favor of its stockholders
including petitioner.

Furthermore, respondent is precluded from adopting a posltlon

contrary to one previously taken where injustice would result to the taxpayer, as
held by the Supreme Court in the case of Commissioner of Internal Revenue vs.
Philippine Health Care Providers, Inc. 55 , to wi~

55 G.R. No. 168129, April24, 2007.

DECISION
CTA CASE NO. 8940
Page 19 of21

"It is thus apparent that when VAT Ruling No. 231-88 was
issued in respondent's favor, the term 'health maintenance
organization' was yet unknown or had no significance for taxation
purposes. Respondent, therefore, believed in good faith that it was
VAT exempt for the taxable years 1996 and 1997 on the basis of
VAT Ruling No. 231-88.

In ABS-CBN Broadmsting Corp. v. Court of Tax Appeals, this

Court held that under Section 246 of the 1997 Tax Code, the
Commissioner of Internal Revenue is precluded from
adopting a position contrary to one previously taken where
injustice would result to the taxpayer. Hence, where an
assessment for deficiency withholding income taxes was made,
three years after a new BIR Circular reversed a previous one upon
which the taxpayer had relied upon, such an assessment was
prejudicial to the taxpayer. To rule otherwise, opined the Court,
would be contrary to the tenets of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-

CBN Broadcasting Corp. in the later cases of Commissioner of Internal
Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen.
Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor
(Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals.
The rule is that the BIR rulings have no retroactive effect where a
grossly unfair deal would result to the prejudice of the taxpayer, as
in this case.

More recently, in Commissioner of Internal Revenue v. Benguet

Corporation, wherein the taxpayer was entitled to tax refunds or
credits based on the BIR's own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling
changing the category of the taxpayer's transactions for the
purpose of paying its VAT, this Court ruled that applying such
ruling retroactively would be prejudicial to the taxpayer."

It must be recalled that BIR Ruling DA-316-2007 declared the transfer

by BBCC of the reclaimed lots to its stockholders as liquidating dividends as
not subject to income tax, creditable withholding tax, and documentary stamp
tax. On the other hand, BIR Ruling No. 479-2011 denied Aguirre Pawnshop
Company, Inc.'s request for confirmation as to the non-taxability of the
transfer of properties as liquidating dividend to its shareholder, Marmitz, Inc.,
for lack of legal basis under the NIRC of 1997, as amended. Undoubtedly, the
application of BIR Ruling No. 479-2011 would be prejudicial to petitioner who
believed that BBCC's transfer is not subject to capital gains tax/
DECISION
CTA CASE NO. 8940
Page 20 of21

As explained by the Supreme Court in the case of Commissioner if Internal

Revenue vs. Fortune Tobacco Corporation56 :

"The rule in the interpretation of tax laws is that a statute

will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. A tax cannot be imposed without
clear and express words for that purpose. Accordingly, the general
rule of requiring adherence to the letter in construing statutes
applies with peculiar strictness to tax laws and the provisions of a
taxing act are not to be extended by implication. In answering the
question of who is subject to tax statutes, it is basic that in case of
doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because
burdens are not to be imposed nor presumed to be imposed
beyond what statutes expressly and clearly import. As burdens,
taxes should not be unduly exacted nor assumed beyond the plain
meaning of the tax laws."

WHEREFORE, premises considered, the Petition for Review is

GRANTED. Accordingly, respondent is ORDERED TO REFUND OR
TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the
amount of P6,522,000.00, representing erroneously paid capital gains tax from
its receipt of real property by way of liquidating dividends from BBCC.

SO ORDERED.

~- ~ ~' ~
MA. BELEN M. RINGPIS-LIBAN
Associate Justice

WE CONCUR:

LOVELL~. BAUTISTA
<

Ass1~ate Justice

56 G.R. Nos. 167274-75,July 21,2008.

DECISION
CTA CASE NO. 8940
Page 21 of21

ATTESTATION

I attest that the conclusions in the above decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Court's Division.

LOVEL-~. BAUTISTA
Ass~~te Justice
Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the

Division Chairperson's Attestation, is it hereby certified that the conclusions in
the above decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court.

Presiding Justice